UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the six month period ended: September 30, 1998
Commission File Number: 0-21908
MRS Technology, Inc.
(Exact name of registrant as specified in its charter.)
Massachusetts 04-2904966
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Elizabeth Drive, Chelmsford, MA 01824-4112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978)250-0450
Former name, former address, and former fiscal year, if changed since last
report: Not Applicable
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period
that the registrant was required to file such reports), and 92) has been
subject to such filing requirements for the past 90 days.
YES (X) NO ( )
Applicable only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Outstanding as of
Class: October 19, 1998:
- ---------------------------- -----------------
Common Stock, par value $.01 6,858,763
<PAGE>
MRS Technology, Inc.
FORM 10-Q
For the six month period ended September 30, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1998 (Unaudited) and March 31, 1998
Consolidated Statements of Operations for the
Three months ended September 30, 1998 and 1997 (Unaudited)
Consolidated Statements of Operations for the
Six months ended September 30, 1998 and 1997 (Unaudited)
Consolidated Statements of Cash Flows for the
Six months ended September 30, 1998 and 1997 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 3. Default Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
Part I Financial Information
Item 1. Financial Statements MRS Technology, Inc.
Consolidated Balance Sheets
Assets Sept 30, 1998
Current assets (Unaudited) March 31, 1998
<S> <C> <C>
Cash and cash equivalents $ 183,089 $ 1,094,636
Accounts receivable, net 317,447 862,155
Inventories 5,337,618 5,643,432
Deposits 23,189 20,989
Other current assets 56,990 56,076
- --------------------------------------------------------------------
Total current assets 5,918,333 7,677,288
Property and equipment, net 68,255 176,969
Other assets, net 27,494 29,965
- --------------------------------------------------------------------
Total assets $ 6,014,082 $7,884,222
====================================================================
Current liabilities
Accounts payable $ 67,537 $ 723,516
Accrued expenses 76,485 1,187,700
Short-term debt 0 1,000,000
Other liabilities 94,417 140,714
- --------------------------------------------------------------------
Total current liabilities $ 238,439 3,051,930
Liabilities subject to
compromise (Note 1) 3,199,508 0
- --------------------------------------------------------------------
Total liabilities $ 3,437,947 3,051,930
Stockholders' equity
Common stock, $.01 par value; authorized,20,000,000 shares;
issued and outstanding 6,858,763 and 6,838,165 shares
respectively 68,588 68,381
Additional paid-in capital 36,511,202 36,487,455
Accumulated deficit (34,003,655) (31,723,544)
- --------------------------------------------------------------------
Total stockholders' equity 2,576,135 4,832,292
- --------------------------------------------------------------------
Total liabilities and stockholders' $ 6,014,082 7,884,222
equity
====================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended Sept. 30,
Revenue 1998 1997
<S> <C> <C>
Product $ 0 $2,593,116
Service and other 603,588 621,912
--------- ---------
Total revenue $ 603,588 3,215,028
Cost of revenue
Product 280,610 2,181,723
Service and other 421,497 227,000
--------- ---------
Total cost of revenue 702,107 2,408,723
Gross margin (98,519) 806,305
Operating expenses:
Research and development 90,529 578,280
Selling, general and administrative 287,635 604,880
--------- ---------
Loss from operations (476,683) (376,855)
Other Income (expense) 108,741 (6,867)
--------- ---------
Loss before reorganization items and
income tax (367,942) (383,722)
Legal fees 112,419 0
--------- ---------
Loss before provision for
income taxes (480,361) (383,722)
- --------------------------------------------------------------------------
Net loss ($480,361) ($383,722)
==========================================================================
Net loss per share (0.07) ($0.06)
Weighted average number of common
shares outstanding (000's) 6,859 6,805
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Operations
(Unaudited)
Six months ended Sept. 30,
Revenue 1998 1997
<S> <C> <C>
Product $ 0 $2,593,116
Service 993,114 1,039,468
--------- ---------
Total revenue 993,114 3,632,584
Cost of revenue
Product 724,681 2,414,224
Service 774,892 539,200
--------- ---------
Total cost of revenue 1,499,573 2,953,424
Gross margin (506,459) 679,160
Operating expenses:
Research and development 770,864 1,096,304
Selling, general and administrative 968,754 1,111,082
--------- ---------
Loss from operations (2,246,077) (1,528,226)
Interest income (expense) 78,388 13,951
---------- ----------
Loss before reorganization items and
Income tax (2,167,689) (1,514,275)
Legal Fees 112,419 0
---------- ---------
Loss before provision for
income taxes (2,280,108) (1,514,275)
- ---------------------------------------------------------------------
Net loss ($2,280,108) ($1,514,275)
=====================================================================
Net loss per share (0.33) ($0.22)
Weighted average number of common
shares outstanding (000's) 6,855 6,781
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
MRS Technology, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six month periods ended Sept. 30,
1998 1997
Cash flows from operating activities
<S> <C> <C>
Net loss ($2,280,108) ($1,514,628)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 106,330 200,040
Changes in assets and liabilities
Accounts receivable 544,708 147,911
Inventories 305,814 (212,392)
Deposits and other assets 1,736 (169,777)
Accounts payable 184,902 952,383
Accrued expenses (385,093) 68,222
Customer deposits from other 506,250 (832,515)
Other current liabilities (46,297) 143,625
- -------------------------------------------------------------------------
Net cash used in operating activities (1,066,608) (1,217,131)
Cash flows from investing activities
Capital expenditures 0 (28,566)
- -------------------------------------------------------------------------
Net cash used in investing activities 0 (28,566)
Cash flows from financing activities
Net borrowings under line of credit 126,257 0
Proceeds from stock purchases under
employee stock purchase plan 18,996 0
Proceeds from employee stock option
exercise 4,959 26,662
Principal payments under capital
lease obligations 0 (1,447)
-----------------------------------------------------------------------
Net cash provided by financing activities 150,212 25,215
Net decrease in cash & equivalents (911,547) (1,220,482)
Cash and cash equivalents at beginning
of period 1,094,636 3,290,982
Cash and cash equivalents at end
of period $ 183,089 $ 2,070,500
=========================================================================
Supplemental cash flow information
Interest paid $ 72,349 $50,726
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
PAGE
<PAGE>
MRS Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The financial statements for the three month periods ended September 30,
1998 and 1997 are unaudited and include all adjustments which, in the
opinion of management, are necessary to present fairly the financial
position at September 30, 1998 and the results of operations and cash
flows for the periods then ended. All such adjustments are of a normal
recurring nature. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Form 10-K for the fiscal year ended March 31, 1998.
Certain information and footnote disclosures normally included in the
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission applicable
to quarterly reports on Form 10-Q, although the Company believes the
disclosures in these financial statements are adequate to make the
information presented not misleading.
The Company's financial position, results of operations and cash flows for
any interim period are not necessarily indicative of the results for any
other interim period or for a full fiscal year.
1. Reorganization under Bankruptcy Proceedings
On July 1, 1998, the filing date, the Company filed a voluntary petition
under Chapter 11 of U.S.C. Title 11 with the United States Bankruptcy
Court for the District of Massachusetts (Western Division)(Case No.
98-44938-JFQ). Since the filing date, the Company has operated its
business as a debtor-in-possession subject to the jurisdiction of the
Bankruptcy Court. All claims against the Company in existence prior to
the filing date have been classified as "liabilities subject to
compromise" in the consolidated balance sheet, and are subject to payment
only when and as provided for by an order of the bankruptcy court.
At September 30, 1998, "liabilities subject to compromise" were comprised
of the following:
<TABLE>
<CAPTION>
Liabilities Subject to Compromise
(In Thousands)
<S> <C>
Trade accounts payable $ 842
Secured Debt 1,126
Customer Deposits 506
Accrued Expenses 726
------
$3,200
</TABLE>
2. Research and Development
Research and product development costs are expensed as incurred. There
were no costs recovered under research and development contracts during
either of the quarterly periods ending September 30, 1998 or 1997.
3. Inventories
Inventories consist of the following as of September 30, 1998 and March
31, 1998:
<TABLE>
<CAPTION>
(In Thousands) September 30, 1998 March 31, 1998
<S> <C> <C>
Work in process $4,545 $4,585
Purchased parts 793 1,058
------- -------
$5,338 $5,643
</TABLE>
4. Net Loss Per Common Share
<TABLE>
<CAPTION>
Net loss per share is calculated as follows:
Quarter Ended September 30,
(In Thousands, except per share amounts) 1998 1997
<S> <C> <C>
Net loss ($480,361) ($383,722)
Basic and diluted 6,859 6,805
Weighted-average common shares outstanding
Net loss per common share (0.07) (0.06)
</TABLE>
<TABLE>
<CAPTION>
Net loss per share is calculated as follows:
Year-to-Date September 30,
1998 1997
<S> <C> <C>
Net loss ($2,280) ($1,514)
Basic and diluted 6,855 6,781
Weighted-average common shares outstanding
Net loss per common share (0.33) (0.22)
</TABLE>
5. Litigation
The Company's Annual Report on Form 10-K for the year ended March 31, 1998
described a Settlement Agreement on litigation between the Company and
Micron Display Technology ("Micron"). The final payment due from Micron
under the Settlement Agreement was made on July 31, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 ("the Act") provides
a "safe harbor" for forward-looking statements so long as those statements
are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement.
The Company desires to take advantage of the "safe harbor" provisions of
the Act. Certain information contained herein, particularly the
information appearing under the headings "Business Development," "Results
of Operations," "Liquidity and Capital Resources" and "Factors Affecting
Future Results" are forward-looking. Information regarding certain
important factors that could cause actual results of operations or
outcomes of other events to differ materially from any such
forward-looking statement appear together with such statement, and/or
elsewhere herein. The Company assumes no obligation to update the
information contained herein.
Business Development
During the first quarter of fiscal 1999 the Company, under the direction
of its new chief executive officer, refocused its marketing efforts
towards the High Density Interconnect (HDI) business, specifically, for
the high density single chip and multi-chip packaging. The Company sought
strategic relationships with customers in the new market in order to gain
new orders for its products, in the short-term and market acceptance of
its technology in the long term. The Company also attempted to obtain
funding for its operations and research and development efforts and to
renegotiate the terms of its line of credit.
The Company was unable to obtain funding or to negotiate successfully with
regard to its line of credit, although it did receive a waiver on
complying with certain covenants in the line of credit agreement valid
through June 30, 1998. That waiver was not extended and the Company is
now in default under its line of credit.
On June 30, 1998 the Company reduced its workforce by approximately 80%.
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA.
The Company retained substantially all of its service organization and is
continuing to support the installed base. The Company expects that this
will be an important source of revenue in the near term. The Company's
plan is to conserve cash while attempting to close transactions for the
sale of four machines in inventory and develop new products to market to
the HDI segment of the Printed Circuit Board (PCB) manufacturing industry.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
TOTAL REVENUES
Revenues (In Thousands)
Quarter Ended September 30,
1998 % 1997 %
<S> <C> <C> <C> <C>
Product $ 0 $2,593 81
Service & other 604 100 622 19
---- --- ------ ---
Total revenues $604 100 $3,215 100
Six Months Ended September 30,
1998 % 1997 %
<S> <C> <C> <C> <C>
Product $ 0 $2,593 71
Service & other 993 100 1,039 29
---- --- ------ ---
Total revenues $993 100 $3,632 100
</TABLE>
There were no product revenues for the quarter and year-to-day ended
September 30, 1998. The quarter and year-to-date ended September 30, 1997
reflect the sale of one PanelPrinter.
Service revenues for the three and six months ended September 30, 1998 and
1997 were approximately the same.
<TABLE>
<CAPTION>
GROSS MARGIN
Quarter Ended September 30,
Gross Margin (In Thousands) 1998 % 1997 %
<S> <C> <C> <C> <C>
Product ($281) $411
As % of revenue - 16
Service & other 183 395
As % of revenue 30 64
Total gross margin ($98) (16) $806 25
Six months Ended September 30,
1998 % 1997 %
<S> <C> <C> <C> <C>
Product ($725) $179
As % of revenue - 7
Service & other 218 500
As % of revenue 22 48
Total gross margin ($507) (51) $679 19
</TABLE>
Product Gross Margin as a percent of revenue for the quarter and
year-to-date ended September 30, 1998 were negative as there were no
product revenues to offset overheads. Product Gross Margin as a percent
of revenue for the quarter and year-to-date ended September 30, 1997 were
16% and 7% respectively.
Service Gross Margin as a percentage of revenue was 30% for the quarter
ended September 30, 1998 compared with 64% for the same quarter in the
prior year and was 22% for the year-to-date ending September 30, 1998
compared with 48% for the same period in the prior year. These
year-to-year decreases in gross margin are the result of increased costs,
including increased facility allocations and the transfer of additional
head count expense to service costs, in the current period as compared to
the prior year's period.
<TABLE>
<CAPTION>
Research & Development
(In Thousands)
Quarter Ended September 30,
1998 % Change 1997
<S> <C> <C> <C>
Research and development $91 (84%) $578
As a % of revenue 15% 18%
Six Months Ended September 30,
1998 % Change 1997
<S> <C> <C> <C>
Research and development $771 (30%) $1,096
As a % of revenue 78% 30%
</TABLE>
Research and development costs decreased by 84% for the September 30, 1998
quarter and year-to-date when compared with the same quarter and
year-to-date for the prior year due to the workforce reduction on June 30,
1998 which included mostly research and development employees.
<TABLE>
<CAPTION>
Selling, General and Administrative
(In Thousands)
Quarter Ended September 30,
1998 % Change 1997
<S> <C> <C> <C>
Selling, general & administrative $288 (52%) $605
As a % of revenue 48% 19%
Six Months Ended September 30,
1998 % Change 1997
<S> <C> <C> <C>
Selling, general & administrative $ 969 (13%) $1,111
As a % of revenue 98% 31%
</TABLE>
Selling, general and administrative costs for the current quarter ended
September 30, 1998 were down 52% from the same quarter in the prior year,
and were down 13% on a year-to-date basis for the periods ending September
30, 1998 and 1997. The decrease in the current quarter from the same
quarter in the prior year is a result of sales and marketing and
administrative employees included in the June 30, 1998 workforce
reduction. On a year-to-date basis, expenses are down for salaries and
fringe benefits, but are partially offset by higher Coast Business Credit
fees.
REORGANIZATION ITEMS
The legal fees of $112 thousand are the result of the Chapter 11 filing on
July 1, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at September 30, 1998 of $183
thousand, a decrease of $912 thousand from March 31, 1998. This decrease
was mainly the result of negative cash flows from operations in fiscal
1999 which have resulted from declining sales and, therefore, significant
losses from operations.
Historically, the Company has required significant working capital to
support its research and development efforts and to meet its ongoing
production, selling and general and administrative costs. The Company's
transition to a new market will require investments to adapt the Company's
FPD technology for this new market as well as substantial funding for its
ongoing operations until such time as orders from this new market are
sufficient to meet its working capital needs. In addition, historically,
the Company has funded a substantial portion of its aggregate research and
developments costs through contracts with an agency of the U.S. government
and other contracts. However, the Company does not expect to continue to
funds its research and development efforts through similar contracts in
the future. The Company's ability to develop new technologies is
dependent upon its ability to fund research and development through
working capital and/or other financing alternatives.
In the past, the Company has been able to meet its working capital
requirements through its existing cash balances and amounts available
under its line of credit. However, as a result of its significant net
loss in fiscal 1998, the Company was not in compliance with a financially
restrictive debt covenant, minimum tangible net worth, as of March 31,
1998.
The Company was unable to get funding or to negotiate successfully with
regard to its line of credit, although it did receive a waiver on
complying with certain covenants in the line of credit agreement valid
through June 30, 1998. That waiver was not extended and the Company is
now in default under its line of credit.
During the first quarter of fiscal 1999 the Company, under the direction
of its new chief executive officer, refocused its marketing efforts
towards the High Density Interconnect (HDI) business, specifically, for
the high density single chip and multi-chip packaging. The Company sought
strategic relationships with customers in the new market in order to gain
new orders for its products, in the short-term and market acceptance of
its technology in the long term. The Company also attempted to obtain
funding for its operations and research and development efforts and to
renegotiate the terms of its line of credit.
On June 30, 1998 the Company reduced its work force by approximately 80%.
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA.
The Company retained substantially all of its service organization and is
continuing to support the installed base. The Company expects that this
will be an important source of revenue in the near term. The Company's
plan is to conserve cash while attempting to close transactions for the
sale of four machines in inventory and develop new products to market to
the HDI segment of the Printed Circuit Board (PCB) manufacturing industry.
Factors Affecting Future Results
In addition to the risks discussed in "Business Developments" and
"Liquidity and Capital Resources" above, the ability of the Company to
attain the financial or other results that may be planned, forecasted or
projected from time to time is subject to a number of factors, including
the ability to obtain new orders, the timing of recording the related
revenue, the ability to develop and manufacture new products, the ability
to respond to competitive technology and pricing pressures, adequate
availability of major components.
PanelPrinters and optional equipment generally have ranged in price from
$1.1 to $2.7 million. Any delay in revenue recognition or cancellation of
an order would adversely affect the Company's results of operations, cash
flows, or both. Fluctuations in product revenues, and consequently
quarterly and annual net income or loss, are largely related to revenue
recognition on sales of PanelPrinter units. In addition, the process for
turning prospects into firm purchase commitments and subsequently selling
the systems is often lengthy.
Year 2000 Computer Systems Compliance
Concerns have been widely expressed regarding the inability of certain
computer programs to process date information beyond year 1999. These
concerns focus on the impact of the Year 2000 problem on business
operations and the potential costs associated with identifying and
addressing the problem. The Company is in the process of evaluating and
taking steps to deal with the potential impact of this problem in areas
under its control, in particular its products, its administrative and
business systems, and its sources of supply.
Based on its review to date, the Company believes that its own products
are "Year 2000 compliant". The Company is in the process of upgrading its
business systems. The upgrade will enable proper processing of
transactions relating to the Year 2000 and beyond. The Company has also
undertaken a program to survey suppliers to determine the status and
schedule for their Year 2000 compliance. Where it is believed that a
particular supplier's situation poses unacceptable risks, the Company
plans to identify an alternative source.
Costs incurred in the compliance effort will be expensed as incurred.
While the Company's Year 2000 compliance evaluation is not yet complete,
the Company does not foresee a material impact on its business, operating
results or financial position from the Year 2000 problem. The Company
cannot, of course, predict the nature or materiality of the impact on its
operations or operating results of noncompliance by parties outside its
control.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 1998 the Company filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. The petition was filed in the
U.S. Bankruptcy Court for the District of Massachusetts (Western Division)
in Worcester, MA. The case number is #98-44938-JFQ.
Item 3. Default Upon Senior Securities
The Company has a line of credit with Coast Business Credit in the amount
of $4 million. The Company is in default of its tangible net worth
covenent. The amount of principle and interest due as of September 30,
1998 is $1,126,257.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
Form 8-K. July 1, 1998
Form 8-K. August 19, 1998
Form 8-K. September 24, 1998
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, authorized officers.
MRS Technology, Inc.
Date: October 30, 1998 /s/Carl P. Herrmann
Carl P. Herrmann
President, CEO and Director
(Principal Executive Officer)
Date: October 30, 1998 /s/ Patricia F. DiIanni
Patricia F. DiIanni
Vice President, Treasurer,
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000906768
<NAME> MRS TECHNOLOGY, INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 183,089
<SECURITIES> 0
<RECEIVABLES> 338,492
<ALLOWANCES> 21,045
<INVENTORY> 5,337,618
<CURRENT-ASSETS> 5,918,333
<PP&E> 3,891,499
<DEPRECIATION> 3,823,244
<TOTAL-ASSETS> 6,014,082
<CURRENT-LIABILITIES> 238,439
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 68,588
<TOTAL-LIABILITY-AND-EQUITY> 6,014,082
<SALES> 0
<TOTAL-REVENUES> 993,114
<CGS> 0
<TOTAL-COSTS> 1,499,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,349
<INCOME-PRETAX> (2,280,108)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,280,108)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
